There is only one call in this difficult stock market and that is: “Have we seen the bottom?”

You would be forgiven for thinking that the performance of the Dow says the worse is over. It has been a stellar performance.

Here is the chart:

A bull will say “break out.”

To me I see something else:

Here is the S&P 500:

So the Dow, which I love, is the odd one out. The Dow is not a broad indices and it’s also stuff with defensive stocks. I guess you can see where I’m going with this.

Let’s stop here. We’ve had a crash. It’s borderline but it hits the 25% drop mark where it counts, in a highly curated market. The question is no longer will the market crash but is there a capitulation last leg to this crash?

Most would say things are going to get worse before they get better, but that’s not a good measure because the market looks out one year and is already judging 2024. Will things be this bad in 2024?

I have a rather wild theory to all this and it goes something like this: To hedge the market you long the winners and short the losers. This idea has lead to a concentration of “the winners” while the rest of the market are losers. Thus a huge chunk of value is locked up in stupidly overvalued stocks while a large number of good stocks are out in the cold. As this situation comes unwound the unloved shorts rise and the over-loved longs fall. A small number of mega stocks crumble in valuation while the broad base, especially unloved defensives, might stay afloat or even do well as the market crashes. Sadly nothing will do well in the last leg of this post-covid realignment.

We will know soon enough if the bottom is in because if it isn’t we will see a big correction in the next 8 to 12 weeks.

This is no time to be risk on and that in itself tells me that this market dynamic, which has seen tremendous losses for many, is not over yet.


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